Changing the monetary policy

game using quantitative easing:Is it doing the job?

AABRI Conference Las Vegas 2013October 9-12, 2013

Prof. Ray M. Valadez, Pepperdine University

The U.S. unemployment and mortgage

rates: A relationship

studyRay M. Valadez

Pepperdine UniversityAABRI Conference LV2012-Paper

12079October 4-6, 2012

Last Year’s Presentation

Fed announces new mortgage bond-buying plan, keeps interest rates low• The Fed’s steps were in many ways

remarkable: For the first time, it made a definitive promise that it would keep interest rates ultra-low even if the economy starts to recover. That sent a clear signal that for years it will be cheap for consumers to borrow to buy homes and cars or for businesses to get loans to expand. Washington Post Sept. 9,2013

• http://www.washingtonpost.com/business/economy/fed-expected-to-announce-stimulus-thursday/2012/09/13/38a31be2-fda4-11e1-8adc-499661afe377_story.html

• Retrieved September 20, 2012

News Headlines-Fed actions' economic impact-Washington Post

• The Federal Reserve has launched several programs to lift economic growth over the past few years. The programs seem to have had the effect of raising stock values, reducing the unemployment rate and reducing mortgage rates -- all of which should increase Americans' wealth, make them feel more confident and make it easier to buy a house. In addition to keeping interest rates ultra-low, the Fed earlier launched two rounds of quantitative easing -- purchases of mortgage and Treasury bonds -- and two "Twist" programs that target long-term interest rates specifically.

• http://www.washingtonpost.com/business/economy/fed-actions-economic-Retrereimpact/2012/09/13/4ab78694-fe01-11e1-8adc-499661afe377_graphic.html

• Retrieved September 20, 2012

Figure 1. U.S. Unemployment Rate

Source: Retrieved October 7, 2013 from http://data.bls.gov/timeseries/LNS14000000

The Fed’s Actions seem to indicate that the unemployment rate is correlated to these variables?• Interest Rates

– 10-Yr U.S. Treasury Yields– 30-Yr Fixed Mortgage Rates

• Housing– New starts and– Resale– Case/Shiller Housing 20-Index

Recent QE’s – QE1, QE2, & QE3• QE1:

• QE2:

• QE3:

Recent QE’s – QE1, QE2, & QE3• QE1:

• QE2:

• QE3:

What the literature say?• QE1:

• QE2:

• QE3:

30-Yr Fixed Mortgage Rate Versus 10-Yr U. S. Treasury Rate

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Comparision of the U.S. 30-Yr Fixed Rate & 10-Yr Treasury Yield Rate

30-Yr Fix Mortg Rate

10-Yr U.S. Treasury Rate

Interest-yield

U.S. Unemployment Rate Versus 10-Yr U. S. Treasury Rate

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Comparision of the U.S. Unemployment Rate

& 10-Yr Treasury Yield Rate

U.S. unemployment rate

10-Yr U.S. Treasury Rate

Interest-yield

U. S. Unemployment Rate Versus 30-Yr Fixed Mortgage Rate

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12.0Comparison of U.S. Unemployment & Mortgage Rates

U.S.Unemployment Rate30-Yr Fix Mortg RateR

ates

*Freddiemac pmms

Pearson Correlation Between Variables (Jan 2007-July2012)

Unemployment Rate

Case/Shiller-20 Index

30-Yr Mortgage Rate

10-Yr Treasury Rate

Unemployment Rate 1.000000 -0.898014 -0.784411 -0.610855

Case/Shiller Index -0.898014 1.000000 0.816641 0.797085

30-Yr Mortgage Rate -0.784411 0.816641 1.000000 -0.784411

10-Yr Treasury Rate -0.610855 0.797085 -0.784411 1.000000

Last Year’s Presentation

Robust Multiple Regression Using Huber's Method (C=1.345)

The U. S. Unemployment rate may be estimated as follows:

equals the Y intercept at x=0 or 24.19

equals 1.99 or coefficient of the 10-Year U. S. Treasury Rate

equals 10-Year U.S. Treasury rate

equals (-0.89) or coefficient of the Case/Shiller housing index

equals the Case/Shiller housing 20 index

equals (-1.79) or coefficient of the 30-Year Freddiemac pmms mortgage rate

equals the 30-Year Freddiemac pmms mortgage rate

equals the estimated error

Estimated Model using NCSS Huber’s robust multiple regression :24.1876134233569+ 1.98592794119342*C2 10-yr Treas Rate-0.0885649861419363*C4 U.S. C/S House 20Index-1.79111500054144*C3 30-yr Mort Rate

Table 2. Analysis of Predictive Model (Aug 2012-Jul 2013)

Analysis of an Unemployment Rate Predictive Model by Ray M. Valadez-2013

unemployment rate = 24.188 + (1.99 X 10-yr treas) - (1.79 X 30-yr mort rate) - (.089 X c/s 20 index)

Y intercept 10-yr treasury C/S House 20-Index 30-Yr Mortg-Rate Unemploy Rate Unemploy Rate

24.18761342 1.985927941 -0.088564986 -1.791115001 Actual Predicted difference % difference

2012 Aug 1.68 145.81 3.6 8.10 8.16 -0.06 -0.77%

2012 Sep 1.72 146.21 3.47 7.80 8.44 -0.64 -8.19%

2012 Oct 1.75 146.02 3.38 7.90 8.68 -0.78 -9.83%

2012 Nov 1.65 145.81 3.35 7.80 8.55 -0.75 -9.62%

2012 Dec 1.72 146.08 3.35 7.80 8.67 -0.87 -11.10%

2013 Jan 1.91 146.19 3.41 7.90 8.93 -1.03 -12.98%

2013 Feb 1.98 146.58 3.53 7.70 8.82 -1.12 -14.48%

2013 Mar 1.96 148.56 3.57 7.60 8.53 -0.93 -12.22%

2013 April 1.76 152.38 3.45 7.50 8.01 -0.51 -6.77%

2013 May 1.93 156.15 3.54 7.60 7.85 -0.25 -3.30%

2013 Jun 2.3 159.54 4.07 7.60 7.34 0.26 3.48%

2013 Jul 2.58 162.49 4.37 7.40 7.09 0.31 4.15%

2013 Aug 2.74 4.46 7.30

92.70 99.05 -6.35 -6.85%